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"The burden is likely to be carried by the section of the population that is more entrepreneurial and generates growth, this could result in them being less incentivised or departing to other countries."

Neil Birrell, Premier Miton's Chief Investment Officer, explains why Premier Miton's four Diversified growth funds have lowered exposure to the UK:

At the end of September we made a significant change in asset allocation within the equity portfolio of the Diversified growth funds, where allocations are made to a UK portfolio and a global ex-UK portfolio, reducing the UK weighting.

We have been positive on the UK for some time and had very significant exposure; the reasons for the change of view are outlined below. The overall equity exposure remains unchanged.

Firstly, to give some context to the scale of the move, across the four growth funds, within the overall equity portfolio the target weights were split approximately 55% global ex-UK, 45% UK. This did vary a little fund by fund.

Historically, we have considered target weights nearer 67% global ex-UK, 33% UK to be more normal, until we started favouring the UK more as it looked cheap by international and historic comparison and prospects improved. The target weights have now been changed to 70% global ex-UK, 30% UK.

Whilst this move is significant, we are not far away from previous levels. Furthermore, with the UK only 3.28% of the FTSE All-World Index, we still have a sizable overweight position in all the funds.

Part of the reason we have had a bias to the UK is the expertise we have.

UK equity fund managers, Jon Hudson and Benji Dawes, have produced excellent returns for the Diversified fund range over time, through adopting a multi-cap approach and finding great investments lower down the market cap scale. We still believe that there are great opportunities.

So why did we back the UK more of late? It’s something I have written on extensively over the last year or so, particularly the last few months. It was driven by a number of factors, including; valuation looked attractive by historic and international comparison, inflation had fallen sharply back towards Bank of England target levels, the economy had been stronger than anticipated, interest rates started falling, the consumer sector remained robust, corporate activity was taking place and following the general election, there was greater political stability.

However, more recently, a number of those positive factors have weakened and with the new government’s budget announcement at the end of October likely to herald revenue generating measures, we are concerned that those positives could further reverse, and economic growth could suffer.

In other words, raising taxes does not lead to growth, certainly in the short to medium term. The burden is likely to be carried by the section of the population that is more entrepreneurial and generates growth, this could result in them being less incentivised or departing to other countries.

This has, as you would expect, impacted consumers’ confidence. The British Retail Consortium announced that their recent poll on consumers expectations for their personal finances over the next three months has dropped to a negative score of 6 from a positive one just a month ago.

Also confidence in the state of the economy collapsed to minus 21, from minus 8 in August. I don’t think we can talk ourselves into recession, but there are real world ramifications of rhetoric and actions.

It’s a similar picture being painted by businesses, where confidence has slumped, the Institute of Directors Economic Confidence Index reflects a similar outlook. Unsurprisingly, the UK stock market lagged most others in September.

Similarly, the Bank of England’s reticence to cut interest rates further could stall the economy.

I also fear that investment in the UK from international, corporate and private equity investors could suffer, the splurge of M&A activity has died down. It has also been reported that the largest sovereign wealth funds are no longer willing to look at UK utilities as an investment.

Reading that back, it does tell a rather bleak story. However, another key message is that we have retained a meaningful exposure to the UK, valuation still looks attractive and we can find many good companies that we want to invest in, we see this move as a risk management decision; if the UK continues to do well the funds will still benefit. Perhaps more importantly.

Jon and Benji remain convinced of the good prospects of their holdings and took the opportunity of this switch to rebalance towards their current most favoured ones.

I really want to reiterate that we like the UK equity market, but not as much as we did.